JUDGMENT
R.M. Bapat, J.
1. The appellant herein is the Punjab National Bank, represented by the Manager. Aggrieved by the partial decree passed in C.S. No. 75/82 by the Subordinate Judge, Nizamabad, on 27-4-1984, the appellant has approached this Court in appeal on the grounds mentioned in the memorandum of appeal.
2. The brief facts leading to filing of this appeal can be briefly narrated as follows :
“The appellant herein was the plaintiff and defendants Nos. 1 and 2 are the principal borrowers. The said defendants Nos. 1 and 2 had approached the plaintiff bank for cash credit facility to the extent of Rs. 50,000/-. By negotiation, the plaintiff agreed to give them cash credit facility to the extent of Rs. 50,000/- provided somebody, stands as surety. Accordingly, defendant No. 3 stood as a surety (guarantor) for the cash credit facility given to the defendants Nos. 1 and 2.”
3. It further appears from the pleadings in record that the original defendants 1 and 2 wanted to enhance the cash credit facility enhancing from Rs. 50,000/- to Rs. 1,00,000/- and therefore they made a representation to the plaintiff bank. The plaintiff bank agreed to enhance the cash credit facility provided defendant No. 3, the guarantor, is prepared to execute and stand as guarantor to the said enhanced facility. But defendant No. 3 denied to stand as a guarantor for the enhanced facility and therefore defendants Nos. 1 and 2 produced defendants Nos. 4 and 5 as new guarantors and accordingly the cash credit facility was enhanced from Rs. 50,000/- to Rs. 1,00,000/- by the plaintiff.
4. The transactions went on for some time but when defendants 1 and 2 did not pay the amounts due to the plaintiff-bank, they were constrained to file a suit against all the defendants for recovery of Rs. 1,40,766.48. It appears from the record that all the defendants were served with the suit summons. Defendants Nos. 1, 2, 4 and 5 preferred to remain absent and therefore they were set ex parte. The only contesting defendant was defendant No. 3. The suit against defendant No. 3 was dismissed by the lower Court and hence the plaintiff-bank has filed this appeal.
5. The learned Counsel appearing for the plaintiff-bank submitted that the finding of the lower Court that defendant No. 3 is not liable to pay any amount due under the transaction is contrary to law. The learned Counsel brought to my notice Ex. A-3 which is an Agreement of Guarantee dated 27-2-1978, alleged to have been executed by defendant No. 3 in favour of the plaintiff-bank. The recitals in para 4 of the said agreement reads as follows :
“4. The guarantors hereby consent to the bank making any variance that it may think fit in the terms of the contract with the borrower, to the bank accepting additional or collateral security of any kind determining, enlarging or varying any credit to him or making any composition with him or promising to give him time or not to sue him and to the bank parting with any security it may hold for the guaranteed debt. The guarantors also agree that they shall not discharged from their liability by the bank releasing borrower or by any act or omission of the bank, the legal consequence of which may be to discharge the borrower or by any act of the bank which would, but for the present provision, be inconsistent with their rights as guarantors or by the bank’s omission to do any act which, for this present provision, the bank’s duty to the guarantors would have required the bank to do. Though as between the borrower and the guarantors they are guarantors only, the guarantors agree that as between the bank and the guarantors they are debtors jointly with the borrower and accordingly they shall not be entitled to claim the benefit or legal consequences of any variation in the terms of the contract and to any of the rights conferred on a guarantor by Sections 133, 134, 135, 139 and 141 of the Indian Contract Act.”
The learned Counsel for the appellant submitted that the guarantor had specifically agreed that he waives the right conferred on him under Sections 133, 134, 135, 139 and 141 of the Indian Contract Act and therefore, now the defendant No. 3 has no reason to say that he is not liable to pay the amount due to the plaintiff bank. In support of his contention, the learned Counsel for the appellant brought my attention to the ruling reported in the case of T. Raju Setty v. Bank of Baroda (AIR 1992 Kant. 108). While deciding the validity of Clause 4 of the Guarantee bond, their Lordships of the Karnataka High Court held as follows :
“A recital in the surety bond that ‘surety will not be entitled to any of the rights conferred by Sections 133, 134, 135, 139 and 141 cannot be considered to defeat the provisions of Chapter VII of the Act and as in the case of a contract of guarantee neither the consideration nor the object is unlawful and the recital in question is not opposed to public policy, the agreement with such recital cannot be said to be hit by Section 23. The rights conferred on the surety under Chapter VIII are not inalienable rights nor those rights have anything to do with the public policy as such. Public policy is not to defeat the debt of the creditor, it is to ensure that the money of the creditor is secured and is recoverable in accordance with law; and the debtor or the surety is not absolved of his liability to discharge the debt except in accordance with law.”
With this ruling on record, it was submitted by the learned Counsel for the appellant that if defendant No. 3 has agreed to waive the rights conferred on him under Sections 133, 134, 135, 139 and 141 of the Indian Contract Act, no illegal act is committed by defendant No. 3 as it is not opposed to public policy or it is not an illegal transaction.
6. While rebutting the aforesaid argument, the learned Counsel for defendant No. 3 – respondent herein, brought to my notice the evidence of the plaintiff-bank in which the Manager of the plaintiff bank (PW-1) has specifically admitted in the cross-examination that when defendant Nos. 1 and 2 asked for enhanced facility of cash credit enhancing from Rs. 50,000/- to Rs. 1,00,000/-, defendant No. 3 was called upon to execute the new guarantee bond. But he did not agree, and therefore, defendant Nos. 1 and 2 requested defendant Nos. 4 and 5 to stand as guarantors for the entire amount of Rs. 1,00,000/-. Accordingly, defendant Nos. 4 and 5 stood as guarantors for the entire amount of Rs. 1,00,000/-. It means that defendant No. 3, who stood as guarantor for Rs. 50,000/- is no more liable to pay any amount to the bank if the principal debtor commits default, as he was substituted by defendant Nos. 4 and 5 who had agreed to be the guarantors for the entire amount of Rs. 1,00,000/-.
7. In the above circumstances, this Court holds that defendant No. 3 – respondent herein, is not liable to pay any amount to the appellant-bank under the old Agreement of guarantee and he stands automatically discharged because of creation of a new Agreement of guarantee by the bank with defendant Nos. 1, 2, 4 and 5. There is no merit in the appeal and it is accordingly dismissed.
8. Appeal dismissed.